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Getting decision rights right
How effective organizational
decision-making can help boost performance
www2.deloitte.com
/us/en/insights/topics/talent/organizational-decision-making.html
Effective organizational decision-making is strongly associated with better business
outcomes. Learn what five key attributes organizations can put in place to help their people
make better decisions faster.
From
setting high-level strategy to allocating budgets to hiring new workers, an organization
—or, more accurately, the people within it—makes myriad decisions that determine its
actions in the marketplace. Yet as important as it is to get those decisions “right,” a surprising
number of organizations lack clarity about just what decisions need to be made, who is
responsible for making them, and how the decision-making process should proceed.
Why does this matter? On the face of it, it seems obvious that the lack of clarity around
decision rights would tend to hamper timely decision-making and/or compromise decision
quality. Recent research bears this out: Getting decision rights “right” is an essential part of
high organization design maturity, which in turn is strongly associated with better business
outcomes. Of particular note, public companies in the study with high organization design
maturity enjoyed 23 percent greater revenue growth over the three years prior to the study
than those with low organization design maturity.
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Higher organization design maturity is associated with better business
outcomes
Companies with high organization design maturity are ...
3x more likely to develop new products and services that disrupt markets
1.9x more likely to achieve high levels of customer satisfaction
1.3x more likely to meet their financial targets
... than companies with low organization design maturity.
It’s not hard to intuit why decision rights
can have such a large impact on
performance. Research shows that, in
many organizations, ambiguity
surrounding who is responsible for
making a decision (or decisions) is a
primary cause of delay in the decision-
making process.
Such delays cause the
organization to lose valuable time across
the gamut of its pursuits: developing new
products, updating current products to
meet changing consumer demands,
entering new markets, and other vital
activities. Perhaps even worse, confusion
about who makes which decisions and
how they are made can increase the risk
that some decisions will simply fall
through the cracks entirely.
Fortunately, getting decision rights
“right” is well within the reach of any
organization that is willing to give it
enough attention and focus. That’s because getting it right depends largely on a surprisingly
small set of factors. Our research shows that organizations with high organization design
maturity characteristically:
Simplify and clarify decision rights across the organization
Establish strong, transparent accountability for decisions made
Align individuals in decision-making groups to a common mission
Encourage distributed authority
Prioritize the customer voice in decisions
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Together, these five attributes translate into a number of organizational attitudes and
practices that support effective decision-making (figure 1). An organization that puts these
attributes in place will be well-positioned to improve both the speed and quality of their
decisions—with positive business results. The data supports this relationship: In 2016–2017,
public companies in our data set that excelled in the five above areas increased their earnings
per share (EPS) an average of 45 percent year over year, while organizations that performed
poorly in the five areas averaged an 88 percent EPS
decrease
year over year.
Decision rights 101
Before discussing the five attributes in more detail, it’s helpful to first explain exactly what
“decision rights” means. At its most basic, “decision rights” refers to an organization’s rules
and practices—whether explicit or implicit—around three questions:
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.
Who are the individuals or groups empowered to make decisions?
Decision
rights models
help outline an organization’s hierarchy of decision-makers or decision-
making groups. When decisions must be made in groups, decision rights models specify
which cross-functional leaders must belong to each decision-making body. (The term
governance
is often used to refer to decision rights related to cross-functional decision-
making.)
2
.
What
decisions must be made?
A
decision inventory
lists the decisions that an
organization—that is to say, its leaders, teams, and operating units—must make. Note
that a decision inventory does
not
need to be comprehensive to be useful. Rather, it
should identify the organization’s most important decisions at various organizational
levels—corporate management, business unit leaders, etc. While it may also be helpful
to identify certain subsidiary decisions at each of those levels, many of these lower-
order decisions can often be inferred from an understanding of the most important,
top-level ones.
3
.
How
do operating processes and tools help support decision-making?
A
decision-making process
defines the forums and procedures through which decision-
makers across the organization make their decisions. Factors to consider here include
how often a decision-making body should convene, what stakeholders decision-makers
need to consult, and what evidence (such as data, research, or expert analysis or
guidance) might be useful and available to inform these decisions.
Achieving clarity about the
who
,
what
, and
how
of decision-making doesn’t happen by
accident, however. In our research, organizations with high organization design maturity
were explicitly aware of the need to build decision rights into their organization’s designs.
They
deliberately
set out to establish structures and procedures to enable decision-making
empowerment, influence, and transparency, often prioritizing these elements even over
defining the business’s daily workflows and functions.
What’
s so hard about decision rights?
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If decision rights are so important, why do more organizations not sufficiently address them?
Even many organizations that have recently gone through an organizational redesign effort, a
restructuring, or a merger or acquisition—events where decision rights should have been
explicitly considered—often struggle to articulate their decision-making accountabilities and
processes. What makes decision rights such a common blind spot?
One probable reason is that few people recognize decision rights as a distinct organizational
design need in its own right. We have found that many leaders tend to confuse decision rights
with organizational structure, process, and workflow, mistakenly assuming that the design of
roles or work processes will also adequately define the organization’s decision-making
practices.
Because of this, many organizations remain effectively stuck in neutral, with
management viewing decision-making as a result rather than as something that needs to be
actively—and proactively—addressed. The tacit assumption is that if an organization creates
the right structures and processes, or reconfigures its organizational charts, then decision-
making will happen naturally and automatically, and financial performance will improve. In
reality, this is rarely—if ever—the case.
The sheer size and complexity of some organizations can be another barrier. The bigger and
more complicated the organization, the harder it can be to untangle existing decision-making
practices and design better ones. Overlapping responsibilities can muddle the question of
“who” makes decisions, resulting in inefficiency and slower responses to business
opportunities. In fact, a major institutional challenge is often the tension between getting
something done quickly versus collaborating, integrating, and bringing the whole company
along—with “getting it done quickly” frequently taking priority. Fast decision-making is often
celebrated, even when it’s not necessarily effective or well-informed.
A third, potentially even more pernicious reason that many organizations have difficulty
addressing decision rights is resistance from senior executives. In some organizations,
especially in traditional, more hierarchical organizations, executives may want the identity of
the individuals making decisions to be obfuscated, particularly for top-level corporate
decisions. Why? Because, in environments where decisions are made high up and out of
sight, executives find they can more readily exert outsized influence behind the scenes.
Leaders can make decisions based on personal interest instead of commonly understood
evidence and analysis, and do so while avoiding clear accountability for the outcomes. Simply
put, executives may resist explicitly defining the decision-making process because they fear
diminishing their own power and influence.
Executive resistance to defining decision rights can be particularly strong in organizations
where accountability is not already a strong part of the culture. In organizations where
people do not believe that formal accountability can emerge from a defined process or venue,
it can be difficult to hold
anyone
accountable for decisions, let alone senior leadership. In
such organizations, top executives can often operate with impunity as they grow accustomed
to exerting greater informal influence than they can formally.
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More clearly establishing accountability for decisions, along with defining regular,
transparent decision-making processes and forums, can indeed decrease executives’ informal
influence. However, the payoff for doing this can be twofold. First, decision rights can
become guardrails that prevent personal agendas and loyalties from superseding
organizational goals. And second, better-defined decision rights and accountabilities can
encourage greater collaboration by reducing the reasons for unhealthy competition between
leaders and increasing their attachment to collective outcomes.
Five ways to get decision rights right
Let’s now return to the five attributes related to decision rights that characterize
organizations with high organization design maturity. What does each attribute look like, and
what can leaders do to help install them at their own organizations?
Simplify and clarify decision rights across the organization
At the risk of stating the obvious, the effectiveness of an organization’s decision rights
practices depends critically on how clearly and simply those decision rights—the
who
,
what
,
and
how
of decision-making—are defined and communicated. Our research shows that
clarity in decision-making has the potential to double the likelihood of improving processes
to maximize efficiency.
One well-known tool that can be helpful in designating specific decision-making roles is the
RACI framework, where “RACI” stands for
R
esponsible,
A
ccountable,
C
onsulted, and
I
nformed. In the context of decision rights, leaders can use the RACI framework to
understand and agree on:
Who is
R
esponsible for executing the work?
The
responsible
individual or
individuals are those who carry out the actions prescribed by a decision—not
necessarily those who
make
the decision.
Who is
A
ccountable for the decision’s outcomes?
The
accountable
role
identifies the actual decision-maker, whether an individual or a group. Optimally, each
decision should have only one accountable role (that is, a single decision-making
individual or group).
Who should be
C
onsulted for input, information, insights, and
perspectives?
Along with identifying the appropriate people to be
consulted
, a strong
decision rights framework will also provide guidance on the consultative process (that
is,
how
these consultations should take place).
Who should be
I
nformed about the decision and its outcome?
These may
include individuals in leadership positions as well as other decision-makers whose own
decisions must take the prior decision into account.
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In addition to simplifying and clarifying the
who
and
how
around decision-making, it’s also
important to clearly articulate the
what
—which decisions are the highest priority. In many
cases, understanding
what
decisions are most critical can help organizations better figure out
the
who
and the
how
.
Simplicity and clarity in decision rights can sometimes prove to be the missing ingredient in
an otherwise “stuck” transformation effort. For instance, one Fortune 500 organization in the
financial services industry implemented several agile practices, including redesigning their
organization into network-based teams, in an effort to become more agile as a business.
However, leaders quickly found that the changed structure alone was not yielding the hoped-
for benefits. They moved people and roles around and called them “chapters” and “guilds,”
and yet nothing really changed; in fact, the new structure created further confusion and
decision-making delays, as the accountabilities for decisions had not been clearly assigned. It
was not until the organization focused specifically on decision-making that performance
began to improve. Leaders clarified which few decisions mattered most—the ones that had a
significant impact on resources and outcomes—and identified which person or group had the
authority to make each decision. They then communicated these decision rights to the
accountable people and groups, along with clear guidelines for when a decision would need
to be escalated. By building transparency and accountability into decision-making, the
organization increased worker satisfaction and significantly improved its ability to get
products and services to market.
Establish strong, transparent accountability for decisions made
Just because an organization has done a RACI exercise to assign decision-making
accountability doesn’t mean that those accountabilities have been made strong and
transparent, which is the second key attribute of organizations with effective decision rights
practices. To achieve strong, transparent accountability, leaders should consider and answer
questions such as:
Who is the primary owner of the decision’s outcomes?
How—using what metrics—will these outcomes be evaluated?
Where, when, and how will progress against these outcomes be evaluated?
To what degree will the answers to these questions be shared openly and broadly within
the organization?
The aim of strong, transparent accountability is
not
to assign blame for decisions gone
wrong. Rather, transparent and clear accountability, complete with agreed-upon outcomes
and metrics, makes it easier for an organization to review and reflect on past decisions and
the process by which they were made, enabling the organization to better learn from both
failures and successes. Focusing on decisions and outcomes, and not on individuals, reduces
unhelpful anxieties and defensiveness and increases the potential for true reflection. The
value of such transparency and reflection is backed up by research on organizational learning
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cultures: Organizations with greater clarity about both the identity of its decision-makers and
the outcomes of the decisions made are better able to harvest invaluable wisdom from both
success and failure, ultimately leading to better results.
Decision-makers should understand, too, that it is not enough just to know where one’s own
decision-making authority begins and ends. It can be even more critical to understand what
roles others across the organization play in decision-making, including the specific decision-
making accountabilities of key individuals and groups. This level of understanding is useful
because it can help people identify and address decision-making bottlenecks and roadblocks.
Most organizational decisions, after all, do not occur in a vacuum: Most have a critical path,
with some having to be made before others can be considered, and knowing “where” (that is,
with whom) the decision-making process is stuck is the first step in shaking it loose.
Align individuals in decision-making groups to a common mission
Sometimes, an organization may want certain decisions to be made by groups, not by
individuals. One reason group decision-making can be desirable is that it brings multiple
perspectives to the table, which can improve decision quality. The flip side, however, is that
unhelpful competition and dissent within the decision-making group can slow the process
and sabotage decision quality.
Establishing a clear common mission for the group can help counter this risk, allowing the
group to reach decisions more quickly and less contentiously. To do this, the group should
have a charter that articulates its mission, with the full endorsement of the organization’s
senior leadership team. The organization should also establish individual and team
incentives for the group that support the common mission.
As an example, at one global pharmaceutical company, decisions about resources and project
prioritization had historically been made piecemeal, with the leaders of the R&D, marketing,
legal, and compliance functions signing off on their “piece” of the decision, followed by the
CEO reviewing and approving the decision—in this case, to move on to the next step in the
drug development process—as a whole. This practice of pooling individual decisions for the
CEO’s ultimate signoff was not only slow—many decisions were delayed as their individual
components made their way up the chain of command—but also did not allow the functional
leaders to take each other’s perspectives into account. To speed the decision-making process,
the organization identified what decisions had to be made, determined which ones were most
critical to the outcomes they cared about, and analyzed how these decisions were currently
being made. They then assigned decision-making accountability to specific people or cross-
functional groups, highlighting decisions for which they deemed it essential to bring
cognitive diversity—diversity of thought—to foster innovation and get drugs to market more
quickly.
The common mission, communicated by the CEO as a strategic “must win” priority
and reinforced through changes in bonuses and goals, was to speed up and improve the drug
development process by making timely decisions in an integrated manner. Partly as a result
of these changes, the company was able to accelerate its products’ time to market twofold.
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Encourage distributed authority
Some important enterprise-level decisions must rest with C-suite executives or others in top
management positions. But in the day-to-day course of business, these types of
determinations are much less common than more routine decisions. Pushing such day-to-day
decisions closer to where they directly affect operations—in effect, putting them in the hands
of frontline workers—allows an organization to be more flexible and respond more quickly to
changing marketplace needs.
That said, while giving frontline workers more decision-making authority can increase
adaptability, it can also create confusion if accountabilities are not clearly defined and
communicated. Just as with decision rights among management, it’s therefore important to
explicitly articulate which frontline workers have the authority to make which decisions
under what circumstances.
Empowering line workers to make decisions can pay off in greater agility and responsiveness.
For example, the pharmaceutical company described above identified which decisions had to
remain in the corporate center and pushed all remaining strategic investment and
operational decisions to its frontline teams. Among other things, team leaders were
empowered to make certain financial decisions within previously established budget
guidelines, and given authority to change individuals’ performance measurement metrics and
incentives. This, along with the shift to cross-functional decision-making, helped the
company’s newest drug beat the previous time to market by two years and achieve a
dominant position in the market.
Prioritize the customer voice in decisions
Among the most important ways to better understand customer wants and needs is for
organizations to listen more closely to what their customers are saying. Indeed, our research
finds the highest-performing adaptable organizations have learned to “put the customer and
(the customer’s) outcomes at the center of every decision.”
Giving customer-facing workers
more decision-making authority is one way to increase the customer’s influence over these
decisions.
In one instance, a famous consumer products company was setting up a new, flexible
distribution center intended to tailor distribution to more effectively meet customer demand.
To enable a more accurate understanding of customer demand and the ability to quickly act
on this understanding, key decisions around how to bundle, ship, and deliver products were
assigned to a cross-functional customer-facing team. This approach allowed the company to
streamline these decisions to the extent that they can now adjust their tactics overnight to
respond to immediate changes in customer requirements.
Decision rights as competitive advantage
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Improving an organization’s decision rights practices is not always easy. Whether this work is
initiated by the C-suite or elsewhere in the organization, getting decision rights right can
mean fundamentally changing many things in the way the organization operates. Real and
lasting change depends on engaging the right leaders and stakeholders, creating
transparency throughout the process, and delegating decisions to the lowest organizational
level possible to free top executives to manage institutional decisions.
The effort will likely
require people across the organization to change their behaviors and mindsets, and it will
need to be supported by rewards systems and incentives to encourage change.
In the end, improving decision rights is an achievable goal that can start with the single
decision to proceed. The benefits can far outweigh the investments. By adopting a detailed,
well thought-out approach to decision rights, organizations can inspire a new culture of
transparency and accountability that will help them become more competitive, more
adaptive, and more responsive to marketplace needs.
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